Brainpower in Europe: The Driver for Growth
| GBS Bindra, Global Innovation Director of Logica, addressed the august gathering at the World Investment Conference in La Baule, June 2008. | Key Events |
The fact that we, the Creative Industries, are here today at the World Investment Conference, is evidence that the world economy is changing. The paradigm shift occasioned by the advent of the global knowledge economy demands that the emphasis is now on higher level skills, value-add and exploitation of intellectual property. The successful companies of the future will be smaller, leaner and more fleet of foot. Employment in the future will be more flexible, project-led, requiring mobility and high level qualifications – all well-established characteristics of the creative sector. Already, the concept of developing your career in one company, as my father did, is largely consigned to history. Job security is a largely a mirage and job insecurity, so long a key characteristic of the Creative Industries, is now the norm in many sectors.
Some areas are, however, slow to wake up to these changes – and it is arguable that those areas include the finance and investment communities. Ironically, they themselves have undergone, and continue to undergo, dramatic change. The recent upheavals have been watched with awe by other sectors – but from the Creative Industries’ perspective, a greater attitudinal shift is needed. At the same time, we recognise that we have to do some changing too!
We are a relatively new sector in this economic world and still coming to grips with our newly revealed economic importance – for example, our creativity produces the fastest growing sector in the UK economy, growing at twice the rate of the rest of the economy. Even in our current, disorganised and fragmented state, we produce 7%, £60bn, of UK GDP.
The ecology of the sector is not like other sectors – although, in common with our other characteristics mentioned earlier, it is not impossible that we provide a model for the future. Our sector is characterised by a few large companies – in the UK, less than 6% of creative businesses employ more than 10 people. Instead, in the UK as in the rest of the world, we have a myriad of small micro-businesses and sole traders, coming together in project partnership and moving off again, constantly collaborating, sometimes converging, and changing shape as often as the amoeba. To illustrate this by way of comparison, across Europe there are 16,000 businesses in the automobile industry. There are 160,000 businesses in the mechanical engineering industry. In the Creative Industries, there are 1.3million businesses!
Contrary to popular mythology, creative businesses don’t stay small because they are incompetent. Many of them stay small because they choose to. Often built around the creativity and innovation of one or two individuals, the creative owners have traditionally chosen to protect their creative integrity and to retain control. However, with the new prominence of the sector as an engine for economic growth, and with successful role models of growth businesses emerging, particularly in the digital sectors, the financially risk-averse culture of the sector is beginning to change. New models of leadership and management are emerging that seek to combine the creative independence of the small company with the financial sophistication of large ones. [Ref Blaise Bertrand IDEO] It is now even argued in Government circles that public intervention should focus on middle range companies, perhaps turning over around half a million, instead of concentrating on start ups.
We are a sector that thrives on risk. Famously dismissed by a leading cultural commentator as ‘using improvisational entrepreneurship’, creative managers, most of them, regard improvisation as a positive and a route to creative practice. Their world is based on improvisation, on creativity. And whilst it may be true that creative leaders currently lack the conventional management skills, it may also be true that the skills of conventional managers are inappropriate or simply insufficient for dealing with the demands of a creative business – demands that include the development and exploitation of creative ideas; the management of mixed discipline hierarchies; managing uncertainty regarding the demand for creative content goods and the need to incorporate a broad array of talents to produce them; marshalling resources from different organisations, as well as from freelance individuals; trying to find the 'right temporary permanence' to adapt to changes in their environment, and also to create new opportunities. These skills too need to be articulated, understood and respected.
To create yet more confusion, digital technology is radically transforming the production, circulation and consumption of content, leading to new supports, applications and content offerings. For years, large creative companies have grown big and powerful by exploiting the intellectual property generated by the thousands of individual artists and micro-businesses; and now technology is threatening that business model. Increasingly, the means of distribution is in the hands of the small producers. [Ref Steve Manthorp] Of course, this plays well for the technology companies today but, in order for them to be able to innovate and thrive in the future, they too need the content producers.
The emphasis on investment in creative talent thus becomes inescapable. In Singapore, for example, seeking as Government policy to establish themselves as a global creative hub, they have identified ‘multi-dimensional creativity – artistic creativity, business entrepreneurship and technological innovation – as the new currency of success’. They will be investing over £200million in their digital media industry alone – the investment is expected to create a total of 30,000 new jobs by 2018 - 6,000 within the digital media industry and 24,000 in related industries. This in a city-state of only 4.5million population!
To take another example, in India since 1994, digital industries have grown between 40% and 50% per year. The industry objective is to reach a £45 billion turnover in 2008. Their Media and Entertainment Industry is one of the fastest growing business sectors in India. New entertainment genres like entertainment parks and visual effects are emerging as significant contributors to the economy.
In Europe, it is true, as summarised in this conference’s Executive Summary, we enjoy a wide range of relative advantages in this field: training and education, international reach, attractiveness, and the permanent presence of talent throughout the region. But we cannot afford to be complacent. We need to support and invest in the talent and technology, the content and the means of distribution for this sector. It’s worth noting that in many cases, the level of investment needed for individual creative businesses is nowhere near the levels required for manufacturing businesses. The financial models for return on investment will therefore need to be rethought. [Ref Thierry and Peaceful Fish] The criteria for success are also very different since it is true that the funding and investment communities are still working to the criteria established in the 19th and 20th centuries, as applied to an industrial economy. However, in the knowledge economy, where creativity is at a premium, growth in terms of number of employees is largely irrelevant. Size, shape and longevity of a business are now fast changing and flexible, markets are smaller and niche, and the revenue impact is often over a long period. As Chris Andersen, the Editor of Wired magazine, has identified in his book The Long Tail: Why the Future of Business Is Selling Less of More, our culture and economy is moving away from a focus on a relatively small number of "hits" (mainstream products and markets) at the head of the demand curve and toward many more, diverse, niche-driven models in the tail. This conceptual shift is largely explained by the falling cost of production and distribution because of digital technologies. With digitisation, there are no longer physical shelf-space limitations or bottlenecks of distribution, so narrowly-targeted goods and services can be as economically attractive as mainstream offerings, according to the theory. One consequence of this could be that there will more small players rather than the consolidation into larger corporates.
In summary, therefore, the Creative Industries are an increasingly important part of our economy. Whilst it is true that the top 5% of high growth firms will achieve investment without much assistance from policy, sector bodies or people such as us, it is arguable that if we can improve the growth rate of the next 30%, the growth in GDP may well outweigh the GDP growth of the top 5% and furthermore the spillover benefits of this 30% will certainly reach a far wider audience. The Creative sector is, however, an immature sector when it comes to communicating with the investment and finance community and there is a strong need both to improve the way we prepare firms for investment and in the way we communicate the investment proposition.
By the same token, all of this requires a reciprocal and significant shift in the thinking of the funding and investment communities. There needs to be a greater recognition of the value, role and potential of the creative sector in a knowledge economy. Here be your wealth creators – undoubtedly creating it differently, straining your risk management processes, upending your principles, breaking your rules – but in the end as interested in, and as capable of, making money from success as you are. Change and prosper! – or be like the frog in a saucepan of water who, as the water slowly heats up, doesn’t notice the changing environment and allows himself to be boiled to death.
Courage!